The Best and Worst
Stocks of 1997
Loser -- Data Race Inc.
(Nasdaq: RACE) Price: $4 1/16
The Company's Biz. Data Race is a San Antonio, Texas-based company that makes connectivity devices such as computer modems and multiplexers.
A multiplexer is a hardware device that slices and dices your phone line into separate parts so you can do a number of different things at one time. For example, if you had a multiplexer, you'd be able to stay online and talk on the phone at the same time, with just one phone line.
The Story. Sometime in the middle of 1996, Data Race announced that it was working on a cool new product, Be There!, which would allow telecommuters to send data, fax, and speak on the telephone all over the same line at the same time.
The Plot Thickens. Around November of last year, the company's stock started shooting up on word that it was about to unveil this great new product that would revolutionize the telecommuting market. The stock climbed to as high as $24 1/4 at the very end of last year. But the company didn't unveil the BE There! product until February. By this time, the company's stock had fallen to around $15. Despite the unveiling of the product, Data Race reported pretty ugly looking financials in May. The company had the product available for almost three full months and nobody was really buying it.
Data Race shrugged this off, though, and said that the problem wasn't with the product, but that it didn't have enough of a sales force to properly market it to Fortune 500 companies. Since May, Data Race has announced several partnerships with companies to sell Be There!, including Data General and Telesource. Recently, the company has said that more sales representatives have been trained to sell the product.
Where Are We Now? Basically, Data Race still has not recorded any significant revenue from Be There! The company says it is still trying to penetrate key distribution channels and that revenue momentum should follow such penetration. It is critical to the survival of the company that it successfully markets this product. It seems that the main problem with Data Race's technology is that the product costs between $500 and $1,200 and only works at speeds up to 33.8K. Also, in order to receive phone calls from the office, the calls have to be routed through the switchboard at the office and then to the user's home. This could mean some serious long-distance charges if the office is in a different area code, making any cost savings meaningless. With an additional phone line costing less than $300 a year, one wonders how popular this technology could ever be.
The Future. Data Race is putting all of its hopes on the success of this one product. If it does hit big, shareholders will be very pleased. Given some of the drawbacks of the product, however, it's tough to see how this could be a huge commercial success.
How Could You Have Found This Loser. One way you might have sensed problems coming is if you read the Motley Fool AOL stock message board for Data Race back at the end of last year. Despite all the cheerleading for the stock, one individual, Syquester, bucked the tide and basically called the fall.
As late as June of this year, the stock price was still around $15. Had you done your homework and read the past news on the company, you'd have known this was essentially a one-product company and that product didn't get to market for more than nine months after the company announced it. You'd also have known that one of the largest beneficial shareholders, Charles Axelrod, bailed out, selling more than a million shares. Finally, and most damning, you'd have seen in May that the company had not received any substantial revenue from the product, even after a full quarter of commercial availability.
Lessons Learned. Investing in one-product companies can be very, very dangerous. Not seeing any material results from a product's rollout, especially after a year of touting, is a very bad sign. Be careful and do your homework. Make sure you know your companies' businesses.
[Fool Articles: Daily Trouble, 07/24/97: Data Race ]
--David Forrest (TMF Bogey)
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